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Tuesday, May 25, 2004

Outsourcing Watch: The South as a Haven of Jobs?

Back in the eighties and early nineties many companies experimented with moving plants and workforces down south. The lower costs of the south as it turned out were offset by a "different" work ethic and culture than the north's manufacturing environment. Call it outsourcing baby steps. Now the South has emerged a region of resilience in this up and down economy according to the CSM.

The South emerges as jobs haven

By Patrik Jonsson | Correspondent of The Christian Science Monitor

...Raleigh's unemployment rate recently dropped to 3.6 percent - among the lowest in the nation. It also helps explain a paradoxical job recovery in the South: Despite the thousands of manufacturing and technology jobs lost in recent years, this magnolia-scented region is now leading the nation in job creation.

From the Virginia Sounds to the mirror-skinned towers of Houston, large segments of the South are posting some of the highest employment gains in the country, which is particularly significant given the magnitude of the textile and other shop-floor losses of the past decade. Though pockets of hardship endure - and the region continues to lag in wealth creation - the economic growth has been impressive...

"When we talk about jobs being created [in the South], we're talking about everything from medical technicians to software writers to barbers," says Bernard Weinstein, director of the Center for Economic Development and Research in Denton, Texas. "We're not seeing an outmigration, even though a lot of basic industries were hit hard, and that's telling me there's a lot of fermentation going on underneath the surface."

The numbers bespeak some of the vibrancy:

• Total nonfarm employment in the South grew slightly over the past four years, while the nation as a whole lost a net of nearly 2 million jobs.

• From November 2003 to April 2004, the region's jobless rate dropped from 5.6 to 5.0 - the lowest rate of any US region.

• More locally, Virginia has posted a net gain of nearly 34,000 jobs the past four years, despite losing some 60,000 manufacturing. Florida has added nearly 278,000 positions. North Carolina produced more jobs, too, even though it lost 155,000 manufacturing positions.

However before outsourcing and globalism advocates shout "AHA!" in a note of triumph over this "example" of modern success, we should investigate the roots on which it is based. The economic successes of the south aren't based upon some sort of emphemereal "comparative advantage", but upon good old wage competition, labor organizing busting, and building up labor force capacity.

Behind the South's vigor lies a variety of forces, from low wage rates and "right to work" laws to a languid lifestyle. Certainly the region's enduring population boom contributes to the economic dynamism. More people are moving to the South - which now contains one third of the US population - than any other region. Retiring baby boomers have helped boost population growth across the Sun Belt by as much as 50 percent more than some other areas. The demographic surge is reflected in robust housing numbers: In March, 613,000 new homes were sold in the South - nearly as much as all other US regions combined.

One notable characteristic of the new migrants is that they are staying put. In the recession of the late 1980s and early 1990s, many laid-off Southerners moved elsewhere looking for work. In the more recent downturn, many hung around - and are now finding jobs in an emerging service economy.

In other words the South's economic success is built upon absolute advantage style competition and a regression to the mean for standard of living costs. That means that standard of living has risen so much on the coasts that people are leaving in order to seek lower cost situations elsewhere. As such the South's success continues to be built on jobs, people, and resources moving from other areas rather than some sort of dynamic trade or technological advantage. In fact according to the article the south still remains underadvantaged in large regions:

Still, economic disparities remain more pronounced in the South than anywhere else in the country. In fact, the overall poorest states are firmly Southern ones, including Alabama, Mississippi, and South Carolina. And experts point out that the job boomlet has largely bypassed Tobacco Road and the South's defining rural areas - the ones hardest hit by the manufacturing trend toward outsourced labor.

Those claiming that trade creates jobs should beware. Even in the well understood domestic economics inside the United States production and labor follow capital allocations based upon traditional relative cost structures and competition. The south is cheaper and the quality of life issues are better precisely because fewer people have moved (yet) or economically developed the south. In a sense the south is benefiting because the coasts have had "too much of a good thing" and this has driven cost competition for capital investment and standards of living up. So people look for opportunities elsewhere. The same thing is happening with capital flight overseas. I'm not arguing that this is necessarily a bad thing, but I do argue that it's not intrinsically a good thing unless we look at it as a competition we're prepared to win.